Clayton’s SEC Starts Meeting Trump-Era Expectations

Nearly a thousand publicly registered companies just learned that they’re not as big as they thought they were.

The revelation had nothing to do with the companies themselves and everything to do with changes in how the Securities and Exchange Commission (SEC) defines a “smaller reporting company.” Importantly, the change means the reclassified companies will see an easing of their reporting requirements.

According to the SEC, smaller reporting companies can provide so-called scaled reporting disclosures to the public, which offer “less extensive narrative disclosure” than what is required of other reporting companies, including in their descriptions of executive compensation. Smaller reporting companies are also permitted to provide audited financial statements for two fiscal years, as opposed to the three years’ worth of audited statements required of other reporting companies.

Previously, companies with publicly held equity of less than $75 million qualified as smaller reporting companies. The newly passed rules raise the threshold to $250 million.

Additionally, companies with less than $100 million in annual revenues now qualify as smaller reporting companies so long as they have a “public float” – a term that refers to a company’s public equity outstanding – of less than $700 million. Under the old revenues criteria, companies could qualify as smaller reporting companies provided that they had no public float and annual revenues of less than $50 million.

The SEC’s announcement hinted at more regulatory easing to come. Specifically, SEC Chairman Jay Clayton has directed the commission to explore changes to its definition of “accelerated filers,” which face additional requirements in the preparation of their financial statements.

When changes to the definition were announced, Clayton noted that the move “recognizes that a one size regulatory structure for public companies does not fit all.” He touted the changes as a win for smaller companies by making the public markets more attractive. Meanwhile, according to Clayton, investors will have access to more investment options as a result of the move.

“These amendments to the existing [smaller reporting company] compliance structure bring that structure more in line with the size and scope of smaller companies while maintaining our long-standing approach to investor protection in our public capital markets,” Clayton said in a press release announcing the changes.

The new reporting standards signal more of the deregulatory bent expected from the Trump administration’s SEC chief. The early days of Clayton’s chairmanship saw the Wall Street watchdog largely continuing Obama-era policies and programs. Clayton’s SEC now appears poised to take a bigger bite out of the agency’s regulatory framework.

His messaging suggests that the latest regulatory easing is being done in the name of small companies and small investors. “I want our public capital markets to be a place where smaller companies can thrive and thereby provide our Main Street investors with more access to investing options where our public company disclosure rules and protections apply,” Clayton said.